This column typically highlights a key economic report or influential event in the coming week that could influence the investment markets. As the third calendar year of the COVID-19 pandemic approaches, let’s look beyond sunset this week and 2021.

The credibility of the lender of last resort will be severely tested in 2022.

There is no argument that the Federal Reserve saved the US economy from a deep and devastating depression. He rewrote his real-time playbook in the spring of 2020, as emergency public health restrictions were put in place and consumers simply stopped spending for fear of COVID-19. The simple act of action quelled the economic terror raging in the financial markets and restored investor confidence.

The central bank has already had to change tactics in response to its misreading of price stability, one of its two terms. For months, the Fed saw high inflation as transient. Once it became evident that the pandemic-induced inflationary pressures had not abated, the bank accelerated the end of its strategy to buy US bonds. After ending this program in March, the bank’s next course of action will be to raise its target short-term interest rate.

In 2022, the Fed’s commitment to fight inflation with higher borrowing costs will be tested. Market odds are 50-50, the Fed will hike its rate as early as March, according to the CME FedWatch tool which calculates the probabilities based on the forward market interest rates. While these market ratings can change quickly, the bank is committed to maintaining its reputation and reliability for regular and deliberative action.

In the coming weeks, that dedication will be put under pressure by the omicron variant of the coronavirus. There is no appetite for 2020-type economic shutdowns, and perhaps there is no need. Vaccines have been shown to be very effective in reducing the severity of pandemic disease. Yet this latest shift will stifle some economic activity, threatening to slow the second of the Fed’s mandates – full employment.

The delicate balance for the central bank in 2022 is further complicated by politics. The coming year is a year of midterm elections with the balance of power on Capitol Hill at stake. The rising costs of borrowing for consumers, businesses and homebuyers are not politically. acceptable to those seeking re-election. Still, they may be needed to mitigate the macroeconomic effects of the Fed’s pandemic stimulus and congressional spending.

In the coming year, the Fed’s reputation for independence and integrity will be strained by headwinds in economics and politics.

Tom Hudson hosts ‘The Sunshine Economy’ on WLRN-FM, where he is vice president of news. Twitter: @HudsonsView